On Thursday, Barclays’ shareholders will cast their votes in one of the most audacious assaults by an activist investor on a UK company in recent history, when Edward Bramson will seek a vote of other shareholders which will grant him a seat on the board. Mr Bramson, 68, who has been described as a corporate raider will ramp up his battle with Jes Staley, Barclays chief executive. If the bank’s first-quarter results fail to impress, he is expected to increase the pressure on Barclays and attempt to force the management to scale back its investment banking division.
Mr Bramson has spent about 15 years waging a series of mostly successful attacks on a hotchpotch of underperforming UK businesses, but now Mr Bramson has a much larger target in his sights and reshaping the underperforming investment bank is his biggest UK project yet. The activist, who is better known in the UK for previous campaigns at Electra and 3i, has built up a 5.5 per cent stake in Barclays via his Sherborne Investors vehicle. This investment has made him the third-largest shareholder, a position which he has used to wage a bitter, months-long battle to shake up the institution.
Bramson would be hoping to initiate a change in the company’s strategy that would involve reducing the size of its trading unit. The division reported return on tangible equity of only 9.3 per cent against 16 per cent for its consumer businesses, despite accounting for more than half Barclays’ risk-weighted assets of £320bn. Even the company admitted that its unpopular investment banking unit was still underperforming but argued that his appointment to its board of directors would destabilise the bank.
Further, Barclay’s said that Mr Bramson’s election as a director was not what Barclays needs right now as he would be an uncollaborative and disruptive influence on the board. The bank also insisted that it did not need to change its strategy. The bank added that Mr Bramson does not have the requisite banking skills and experience that could add value to the company’s board. Several large shareholders are not excited that Bramson has financed most of his stake with a $1.4bn loan from rival Bank of America, which was leveraged and time-limited, meaning he was not aligned with other shareholders and he doesn’t have as much covering in the game. Moreover, under a complex derivatives arrangement known as a funded equity collar, he has hedged his position in Barclays by using a series of put and call options that protect him from losses if the shares fall below a certain level.
Although Mr Bramson’s distrust of the division is shared by many, they complain that his plan lack details and are not convinced by his strategy for scaling it back. Rival lenders that took similar paths, such as Royal Bank of Scotland and Deutsche Bank, did not fair well, prompting investors to fear that a botched attempt to shrink the unit could undermine Barclays’ overall stability. Unsurprisingly, few shareholders expect Mr Bramson to be elected as a director next week, though he doesn’t require a board seat to make his presence felt.
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